[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 112-60]
DEPARTMENT OF DEFENSE
COMPONENT AUDIT EFFORTS
__________
HEARING
BEFORE THE
PANEL ON DEFENSE FINANCIAL MANAGEMENT
AND AUDITABILITY REFORM
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
SEPTEMBER 8, 2011
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PANEL ON DEFENSE FINANCIAL MANAGEMENT
AND AUDITABILITY REFORM
K. MICHAEL CONAWAY, Texas, Chairman
SCOTT RIGELL, Virginia ROBERT ANDREWS, New Jersey
STEVEN PALAZZO, Mississippi JOE COURTNEY, Connecticut
TODD YOUNG, Indiana TIM RYAN, Ohio
Paul Foderaro, Professional Staff Member
William Johnson, Professional Staff Member
Lauren Hauhn, Research Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2011
Page
Hearing:
Thursday, September 8, 2011, Department of Defense Component
Audit Efforts.................................................. 1
Appendix:
Thursday, September 8, 2011...................................... 23
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THURSDAY, SEPTEMBER 8, 2011
DEPARTMENT OF DEFENSE COMPONENT AUDIT EFFORTS
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Andrews, Hon. Robert, a Representative from New Jersey, Ranking
Member, Panel on Defense Financial Management and Auditability
Reform......................................................... 2
Conaway, Hon. K. Michael, a Representative from Texas, Chairman,
Panel on Defense Financial Management and Auditability Reform.. 1
WITNESSES
Commons, Hon. Gladys J., Assistant Secretary of the Navy,
Financial Management and Comptroller, and Caral E. Spangler,
Assistant Deputy Commandant, Programs and Resources Department,
U.S. Marine Corps.............................................. 5
Matiella, Hon. Mary Sally, Assistant Secretary of the Army,
Financial Management and Comptroller........................... 3
Miller, Wesley C., Director of Resource Management, U.S. Army
Corps of Engineers............................................. 8
Morin, Hon. Jamie M., Assistant Secretary of the Air Force,
Financial Management and Comptroller........................... 6
APPENDIX
Prepared Statements:
Commons, Hon. Gladys J....................................... 38
Conaway, Hon. K. Michael..................................... 27
Matiella, Hon. Mary Sally.................................... 29
Miller, Wesley C............................................. 52
Morin, Hon. Jamie M.......................................... 43
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
Mr. Andrews.................................................. 61
Mr. Rigell................................................... 61
Questions Submitted by Members Post Hearing:
Mr. Conaway.................................................. 65
DEPARTMENT OF DEFENSE COMPONENT AUDIT EFFORTS
----------
House of Representatives,
Committee on Armed Services,
Panel on Defense Financial Management and Auditability
Reform,
Washington, DC, Thursday, September 8, 2011.
The panel met, pursuant to call, at 8:01 a.m. in room 2212,
Rayburn House Office Building, Hon. K. Michael Conaway
(chairman of the panel) presiding.
Mr. Conaway. Good morning and thanks, everybody, for being
here bright and early. I appreciate my colleagues being here;
and, Rob, thanks for being here.
I would like to welcome today's panel on the efforts of the
Department of Defense to generate auditable financial
statements.
OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
FROM TEXAS, CHAIRMAN, PANEL ON DEFENSE FINANCIAL MANAGEMENT AND
AUDITABILITY REFORM
Mr. Conaway. At our first hearing, we received testimony on
DOD's [Department of Defense] strategy--I don't think I will
ever be able to say that word: ``strategery.'' Strategy. And I
don't think ex-President Bush actually ever said that--
methodology to achieving audit readiness by 2017 and on the
challenges it faces in achieving that goal.
Today, we will hear from various DOD components on their
approach to implementing the DOD financial improvement strategy
and methodology. We will delve somewhat deeper into the
challenges faced at the component level and hear how the
components are incorporating lessons learned from ongoing
audits in their audit readiness plans.
Although there is a standard methodology that DOD
components must follow to guide their audit readiness efforts,
their approaches to achieving audit readiness may vary from
component to component. We are interested in hearing about each
component's approach to achieving financial statement
auditability by 2017.
It is widely recognized that the successful implementation
of the enterprise resource planning systems is key to DOD's
ability to achieve audit readiness. In my examination of this
issue, one thing is clear. We can't afford the cost overruns--
continued cost overruns and schedule slippages that have
plagued these systems to date if DOD is in fact going to be
ready by 2017.
However, as our witnesses noted in testimony before this
panel in late July, new IT [Information Technology] systems
alone will not guarantee auditability. The DOD must improve its
business processes. Hopefully, today's hearing will shed some
light on how the various components are doing in both of these
regards.
Although the military departments are not yet auditable,
DOD has made some progress towards this goal. For example, six
smaller departmental organizations, including the Corps of
Engineers, have received clean audit opinions; and the Marine
Corps is undergoing an audit of its statement of budgetary
resources as we speak.
The military departments must leverage the lessons learned
from these efforts into their audit readiness plans. I hope our
discussions here today will assist in that information exchange
and bring to light some good news with respect to the
Department's efforts to produce financial statements that we
and the taxpayers can have confidence in.
With that, I would like to thank our witnesses for taking
time out of their schedules to be with us this morning.
We have today the honorable Mary Sally Matiella--Matiella?
Matiella. Paul and I were working on that, Mary Sally, and we
just--Matiella, the Assistant Secretary of the Army, Financial
Management and Comptroller; the Honorable Gladys Commons,
Assistant Secretary of the Navy, Financial Management and
Comptroller; Ms. Caral Spangler, the Assistant Deputy
Commandant, Programs and Resources, U.S. Marine Corps; the
Honorable Dr. Jamie Morin, Assistant Secretary of the Air
Force, Financial Management and Comptroller; and Mr. Wesley
Miller, Director of Resource Management, Corps of Engineers.
Now I would like to turn it to my good colleague, Rob
Andrews, for any remarks that he has at this point.
[The prepared statement of Mr. Conaway can be found in the
Appendix on page 27.]
STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM NEW
JERSEY, RANKING MEMBER, PANEL ON DEFENSE FINANCIAL MANAGEMENT
AND AUDITABILITY REFORM
Mr. Andrews. Thank you, Mr. Chairman.
Good morning, ladies and gentlemen. Good to have you all
with us this morning. We appreciate your preparation, and I am
sure this is a hearing where we will all be able to learn
something.
Mr. Chairman, thank you for your aggressive schedule on
moving our work forward. I expected nothing less, and I am
happy to be a part of it.
Since the panel last met, we have made a very important
decision as Congress in this country and that is that it is
rather certain that, irrespective of who is in the Executive
Branch or Congress, there will be very important decisions
about defense spending made over the course of the next decade.
The law as we sit here this morning is that are facing
either a very significant reduction because of sequestration or
we are facing an agreement that in all likelihood will contain
some further reductions in defense spending if there is one.
These are grave and important decisions any way you slice
it. And the question here is not whether we are going to make
these decisions. The question is whether we are going to make
them based on good evidence or insufficient evidence. And the
country would be ill-served if we make these decisions based on
insufficient evidence, and we will make them based on
insufficient evidence if we don't have auditable financial
statements throughout the Department.
This is not just another academic exercise where people
debate the metaphysical question whether auditable statements
are a good thing or a bad thing. This is for real. Because, as
I say, irrespective of who is running the executive branch or
Congress, they are going to be very consequential decisions
that literally affect the life and death of the men and women
who serve and affect the security of the country.
So I think this gives a new urgency to the task of this
panel and of the ladies and gentlemen who will testify this
morning to put ourselves in a position where we, as a Congress
and a country, have in front of us the correct body of evidence
to begin to make decisions about where our investments should
be and where they shouldn't be and how they should be altered.
With that framework, I do think we have seen some real
progress. Mr. Hale's testimony last time around I think laid
out a very good roadmap to get to where we want to go; and this
morning we begin our process of getting into the specifics,
into the weeds, if you will, of how to get there, that you
ladies and gentlemen of the people responsible for getting us
there. And we are interested in hearing how far you have gotten
and when you are going to get to where we need to go and what
obstacles may stand in the way between here and there.
So thank you, Mr. Chairman, for this opportunity. I look
forward to hearing from the witnesses.
Mr. Conaway. All right. Thank you, Rob.
I would ask unanimous consent that non-panel members,
specifically Tim Griffin, be allowed to participate in today's
panel. Is there objection?
Without objection, non-panel members will be recognized at
the appropriate time for 5 minutes.
Mr. Conaway. Mary Sally, your turn.
STATEMENT OF HON. MARY SALLY MATIELLA, ASSISTANT SECRETARY OF
THE ARMY, FINANCIAL MANAGEMENT AND COMPTROLLER
Secretary Matiella. Chairman Conaway, Representative
Andrews, members of the panel, thank you for the opportunity to
testify today regarding financial management and our commitment
to achieving auditable financial statements.
Secretary McHugh, the Chief of Staff of the Army General
Odierno, Secretary Westphal, our Chief Management Officer, and
all our senior leaders recognize the value and the importance
of achieving the mandate of fiscal year 2010 National Defense
Authorization Act which requires the Army to be audit ready by
September 30, 2017.
The Army employs hardworking soldiers and civilians,
personnel across all functional areas who are dedicated to
achieving audit readiness goals. These professionals are
transforming our financial and business systems to improve
financial management, provide timely, accurate, and relevant
information for decision makers, and reassure American
taxpayers and Congress the Army is a trustworthy steward of
public funds.
I am confident that we will be audit ready by September 30,
2017. Because we have a sound and resourced financial
improvement plan conforming to the Department's financial
improvement and audit readiness criteria, a solid enterprise
resource planning strategy guiding our businesses through
development and deployment, and an effective governance
oversight and structure ensuring accountability, our financial
improvement plan is fully resourced, contains detailed
corrective actions and milestones, identifies accountable
organizations, incorporates lessons learned from the Army Corps
of Engineers in the Marine Corps audit and aligns our business
strategy.
The plan emphasizes early and comprehensive evaluation and
testing of management controls. This ensures the controls of
vital--controls vital to audit readiness are in place and
operating effectively as soon as possible. We ensure that we
are audit ready by September 17th.
Our improvement plan calls for annual audit examinations by
an independent public accounting firm each year from fiscal
year 2011 to 2014, these examinations on management and
information technology system controlled and business processes
in the ERP [Enterprise Resource Planning] environment. The
accounting firms conducting these examinations will identify
deficiencies and issue corrective actions.
These examinations will enable us to correct deficiencies
early enough to meet our audit goals for an assertion of the
general fund statement of budgetary resources in fiscal year
2015 and assertion of all financial statements in fiscal year
2017.
These audit exams will also condition the Army on how to
support financial statement audits and ensure audit readiness
strategy is sound and remains on schedule.
Each year, we are repeating a cycle of assessing, testing,
identifying deficiencies, and implementing corrective actions.
Additionally, each audit exam expands its scope by covering
additional audit installations, processes, and systems each
time we do a different wave.
The audit examination is currently in process at three
installations and Army headquarters and covers several business
processes executed in the ERP environment. We recently
completed an examination of appropriations received, which
resulted in an unqualified audit opinion from an independent
auditor, thus confirming our ability to receive and account for
nearly $230 billion of appropriations.
Army senior leaders provide governance and oversight of our
audit readiness efforts and hold personnel accountable for
achieving specific milestones. Accordingly, audit readiness
performance criteria will be included in our senior executive
performance plans starting in October in fiscal year 2012.
Examination of our fiscal improvement plan and enterprise
resource planning strategy, combined with senior level
governance and oversight, will enable the Army to be audit
ready by September, 2017. I am personally committed to meeting
our national security objectives and mandates of law requiring
auditability. I look forward to continued collaboration with
members of this panel, your counterparts in the Senate, GAO
[Government Accountability Office], Comptroller Hale, and DCMO
[Deputy Chief Management Officer] McGrath to ensure the
continued improvement of the Army's business environment.
I look forward to your questions.
[The prepared statement of Secretary Matiella can be found
in the Appendix on page 29.]
Mr. Conaway. Thank, Mary Sally.
Ms. Commons.
STATEMENT OF HON. GLADYS J. COMMONS, ASSISTANT SECRETARY OF THE
NAVY, FINANCIAL MANAGEMENT AND COMPTROLLER, AND CARAL E.
SPANGLER, ASSISTANT DEPUTY COMMANDANT, PROGRAMS AND RESOURCES
DEPARTMENT, U.S. MARINE CORPS
Secretary Commons. Good morning, Chairman Conaway,
Congressman Andrews, members of the panel. Thank you for the
opportunity to discuss the Department of the Navy's effort to
achieve financial audit readiness.
Congressman Conaway, I want to personally thank you for
your support and the interest that you have shown in our
efforts to improve financial management.
The Department is fully committed to achieving financial
auditability, and our senior leaders have provided the
resources to do so. Secretary Hale has asked us to concentrate
our efforts in two areas, the statement of budgetary resources
and existence and completeness of high-value military
equipment. Our plans reflect those priorities.
As noted, the Marine Corps is in the second year of the
audit of the statement of budgetary resources. It has been
challenging, but we continue to make progress, and we have
learned many lessons from that audit. We have incorporated
those lessons in the overall Department's financial improvement
plan. We are also sharing these lessons with other departments.
They include from the complex, proving the accuracy of our
beginning balances for all appropriations, to the simple,
maintenance of our supporting documentation and separation of
duties.
We are making progress in other areas. The Department
recently received an unqualified opinion on our appropriations
received process examination conducted by a private audit firm.
The Department of Defense Inspector General is examining the
completeness and existence of high-value military equipment,
for example, our ships, submarines, ballistic missiles, and
satellites. That examination will be followed by an examination
of the existence and completeness of our aircraft and ordnance
inventory. We believe the outcome from these examinations will
be positive as well.
We are working with our service providers to ensure that we
all understand what must be done and who is responsible. We
have reached across the aisles to assign responsibility to our
own business process owners, such as our human resource and
acquisition organizations. We have met with every senior
executive responsible for executing our business processes;
and, beginning in October, they will have an audit readiness
objective in his or her performance plan.
We are also engaging our general and flag officers through
the Vice Chief of Naval Operations and the Assistant Commandant
of the Marine Corps.
Achieving auditability is challenging and there is much
work to do, but our financial data is accurate, and I will give
you an example.
A few months ago, I received a letter from a former Navy
employee who stated in his letter that he had not received full
payment for a PCS [Permanent Change of Station] move that was
made a number of years ago. We were able to go into our
accounting system, pull out the data, show him the fact that we
indeed had made full payment for his PCS move.
Now, when the auditors look at that, they would ask me, can
you provide the actual PCS order? I may not have been able to
provide the actual PCS order because it would--it happened a
number of years ago, but I was able to go into the accounting
system and pull out the data to show that he had actually been
paid in full for his permanent change of station movement.
We are committed to this effort. We are making progress.
Thank you for your interest and support of our efforts. I will
be happy to answer any questions you might have, as
appropriate.
[The prepared statement of Secretary Commons can be found
in the Appendix on page 38.]
Mr. Conaway. Thank you.
Caral.
Ms. Spangler. I don't have a separate statement. Thank you.
Mr. Conaway. Sorry. That is right.
Jamie Morin, your turn.
STATEMENT OF HON. JAMIE M. MORIN, ASSISTANT SECRETARY OF THE
AIR FORCE, FINANCIAL MANAGEMENT AND COMPTROLLER
Secretary Morin. Thank you, Mr. Chairman and Mr. Andrews
and to all of the members of the panel, for the invitation and
for the focus of this committee over a sustained period of time
on this important agenda.
If I may, I would just like to briefly summarize written
testimony and put the statement in the record.
Mr. Conaway. Without objection.
Secretary Morin. Thank you.
Mr. Conaway, I think that the lesson is clear, that
business as usual is the enemy of success in the audit
readiness effort for the Department of Defense. Business as
usual is not going to get the Department where we need to go.
And the focus of the senior leadership of the Department of
Defense, in response to the clear charge from this committee,
from Congress, and from the American people, has helped get us
out of the chain of business as usual.
The Air Force is closely aligned with the strategy that
Under Secretary Hale has laid out for a focus in audit
readiness on the information that managers use to manage the
Department, building that positive feedback loop that comes
from giving senior leaders the tools they need to do their job,
refocusing our financial improvement and readiness plan on
those elements that are most relevant to those day-to-day
managerial challenges.
It was a shift of focus for the Air Force, which had put a
lot of effort into valuation and other balance sheet pieces of
the effort. And so we are coming from a little bit behind, but
we are making up ground quickly due to really strong support
from senior leaders in the Air Force, including Secretary
Donley and Under Secretary Conaton, who is a good friend of
this committee's, and, of course, our senior uniformed
leadership.
Just a month ago, Under Secretary Conaton and Vice Chief of
Staff General Breedlove jointly wrote all of the 4-star
commanders of the Air Force major commands to impress on them
the criticality of building audit readiness into the
performance plans of their senior executives across a wide
range of functional responsibilities, pushing that effort down
to command level and from there to base level, so it is not
just a headquarter's effort, and pushing that effort out across
the numerous functional areas in the Air Force, so it is not
just a financial management effort.
This leadership from our Chief Management Officer and our--
one of our senior military leaders has really helped us. I am
pleased that, because of that leadership, we have made some
real progress over the last year or so.
Some of our wins include achieving audit readiness for our
appropriations received, as the other Services have, and our
funds distribution process. I think that is critical to giving
the American taxpayer confidence that resources are being
allocated the way they are appropriated.
We have also asserted our funds balance with Treasury
reconciliation process. This is really balancing the Air
Force's checkbook with the Department of Treasury. It is over a
million transactions a month, and we are now reconciling it to
99.99 percent accuracy. A year ago, we couldn't reconcile it.
So that is a significant step.
We have made progress on some of our military equipment and
other mission-critical assets as well, asserting audit
readiness for existence and completeness of our full military
equipment universe, our cruise missiles, and our aerial
targets, which we treat as operating materials and supplies.
Again, I think this progress directly comes from that
intense commitment from our senior leadership, uniformed and
civilian.
We do have a long way to go. That is clear. And the 2017
deadline in law is going to be challenging for the Air Force
because of the shift in focus from the more valuation-oriented
effort but also because of the IT acquisition challenges we
face. We do see moderate risk, but with the high level of
leadership commitment we feel like we are on track to make the
deadline.
Our ability to achieve audit readiness really does depend
on systems modernization. Right now, we are focused on fielding
enterprise resource planning systems, a new accounting system
called DEAMS [Defense Enterprise Accounting and Management
System], a new logistics system called ECSS [Expeditionary
Combat Support System], a new personnel system, and others. We
are behind the other Services in that regard, but that has been
a benefit in many respects because we have been able to learn
lessons from the experiences the other Services have gone
through. As a result, we have made a heavy focus on data
cleanup, we have made a heavy focus on feeder systems, we have
made a heavy focus on change management for the user community,
and that has been helpful. We are not rushing wide deployment
of these systems into the field, but we are using them in real
terms.
The DEAMS accounting system is the system of record at
Scott Air Force Base, one of our large and complex bases that
is handling billions of dollars of transactions. It closed out
last fiscal year successfully, and we will be finishing up this
fiscal year. We will assess that and move on to rolling that
system out.
ERP's are not a panacea. They are not a solution to all of
our problems. But the Air Force is running right now based on
'70s-era bookkeeping systems that will not get us to a clean
audit. They do not have the transaction-based fidelity. They do
not have the U.S. standard general ledger basis that we need to
get there. So IT systems modernization is inescapably part of
the Air Force effort.
Again, we can't rely on business as usual to get us across
the finish line here. We need clear accountability for
individual executives. The Air Force has really been leading
the way on that. We have got a number of senior leaders with
direct financial tie in their performance plans to audit
readiness this year and an even larger universe next year.
We need that real investment in systems modernization. We
need a responsive effective acquisition process for those
system modernization efforts. Again, you can't be stuck in
business as usual of over cost, over schedule; and we need that
involvement to stretch from the headquarters to the field and
from the financial management community to the broader
community.
We are making good progress on all of those pieces, and
that is due in part to the focus of this panel and of Congress,
for which I thank you.
Thank you, sir.
[The prepared statement of Secretary Morin can be found in
the Appendix on page 43.]
Mr. Conaway. All right. Mr. Miller. Excuse me. Mr. Miller.
STATEMENT OF WESLEY C. MILLER, DIRECTOR OF RESOURCE MANAGEMENT,
U.S. ARMY CORPS OF ENGINEERS
Mr. Miller. Good morning, Congressman Conaway, Congressman
Andrews, members of the panel.
I am Wes Miller, Director of Resource Management for the
U.S. Army Corps of Engineers. Thank you for this opportunity to
discuss Civil Works Financial Statement Audits.
The Corps of Engineers achieved a major milestone in fiscal
year 2008 with the receipt of the first-ever unqualified
opinion from a major Department of Defense activity. Last year,
we received our third consecutive unqualified audit opinion and
anticipate a fourth this year. Our current audit firm is KPMG,
with the DOD Inspector General providing oversight.
The Corps has been working on CFO [Chief Financial Officer]
compliance for over 20 years and has faced many challenges
along the way. The biggest challenge in our first audit was
providing documentation for over $28 billion of property,
plant, and equipment. We overcame that challenge by using
alternate supporting documentation approved by the Inspector
General. We also encountered many challenges processing over
14,000 samples as well as meeting the accelerated reporting
timelines. The key to overcoming all challenges was building a
cohesive partnership with the auditors and working with them
for solutions.
From a lessons learned perspective, I would offer that the
Corps of Engineers Financial Management System, which we refer
to as CEFMS, is a major factor in our audit success. The Corps
developed CEFMS as an enterprise financial system that
encompasses travel, training, timekeeping, acquisition, asset
accountability, and fully integrated with the Corps' project
and asset management accountability systems. Many of the Corps'
internal controls are automated within CEFMS, forcing 100-
percent compliance.
For fiscal year '11 audit, we expect to process
approximately 4,000 samples, which is a huge reduction from the
first audit. With the reduced sample testing, we have shifted
our resources to improve our internal controls program.
I recently signed our fiscal year '11 internal audits over
financial reporting letter with an unqualified assurance that
our controls are operating effectively. I expect that our work
on improving internal controls will result in most if not all
of our auditor reported material weaknesses being cleared in
this fiscal year. That is our number one priority.
Thank you for inviting me here today. I look forward to any
questions you may have.
[The prepared statement of Mr. Miller can be found in the
Appendix on page 52.]
Mr. Conaway. Thank you, Mr. Miller.
Thank all you panel members for coming here and the
preparation time you put into making this happen. I am not sure
how you got all those people here behind you, but apparently
there is some interest in your squads as to what you were going
to say this morning.
We will now go on the 5-minute clock with questions. I will
start us off.
One of the things that--it may just be a problem I have--is
that we have legacy systems out there. Mr. Morin, you mentioned
in your written statement that if it looks like you are not
going to make it to 2017. You are developing contingency plans
to audit those systems. We will talk about that in a little
bit.
But is tracking the demise of legacy systems one of the
metrics that we should be looking at as we try to evaluate the
progress that you are making? In other words, at this stage in
the arrangement, I would expect you to be able to point to
those legacy systems which will no longer be needed once you
get to where you want to get to. It would seem if those
continue on beyond that point that you are putting in place a
system that is not sustainable. You may be able to get that one
time audit or whatever, but you are putting--so is--any of the
panel members want to comment on that? And that is to how you
track and affect the demise of these legacy systems as they are
replaced by the others.
Secretary Commons. Chairman Conaway, I will take that
question.
In implementing our ERP at our major acquisition commands,
we believe that we will be able to eliminate 96 legacy systems
by the end of 2016. We know that we have already eliminated 14.
We think we will do another 11 this fiscal year. So we are
tracking whether or not we are able to eliminate those legacy
systems.
One thing that I would like to highlight, however, is that
much of the data that is contained in some of the legacy
systems we need to keep. For example, shipbuilding is a 5-year
appropriation, and it expends much longer, 10, 12 years in some
instances. So converting all of that data to a new system is
very expensive. We chose in some instances to keep that
information into the legacy system until such time as those
appropriations spend out. We are tracking.
Mr. Conaway. Okay. Air Force, Army?
Secretary Matiella. Our strategy right now is we roll out
GFEBS [General Fund Enterprise Business System], which is our
new accounting system, is we are inputting--as we roll it, put
GFEBS into an installation, we only record new data into GFEBS
and the old data stays in STANFINS [Standard Financial System],
which is our old accounting system. But at a date certain,
which would be, you know, something that you could track, the
metric that you are talking about, at a date certain, by 2015,
when we have fully deployed GFEBS, we are going to start
working on bringing the old balances from the system, the ones
that are still applicable, because many of those would have
already deobligated. But the lingering balances in STANFINS,
and we are going to bring them over into GFEBS.
So we are tracking. We do have a strategy where we are
concentrating on new data in GFEBS, but at some point at a date
certain in 2015 we are going to start moving the old data into
the new system.
Right now, we are just concentrating on making sure that
the new system is working, that we are training people
correctly, and we will worry about moving the beginning
balances after we feel like we have got a stable environment in
GFEBS.
Mr. Conaway. Jamie, as you answer yours, one of the things
in looking at the three Services, your timeline gets you right
at the bucket, right at 2017. The other two Services have--or
at least have plans in place to get it done sooner so that if
they have slippage and it doesn't go as planned they have got a
window of opportunity to make that work. Can you address the
fact that the Air Force has got it right on the dime and that
means no slippage?
Secretary Morin. Yes, sir.
I think I will begin with the fact that in the dialogue
between the committee--this committee and the Department of
Defense, the Air Force was the pacing factor that led the
Department of Defense to provide you with the schedule that got
to 2017. So that it is not by happenstance that we are on the
edge. We gave you the most aggressive deadline we could, given
that schedule.
But it leaves us, as you said, with very little room for
slippage, and we are very cognizant of that. As a result, we
are pushing now what I would call a belt-and-suspenders type
approach.
You have mentioned the line in my written testimony on
that, that we are both pursuing our IT systems modernization
through our ERP strategy, where we are definitely planning to
replace a number of systems and we are tracking them as they
come out, although the fact that we are rolling out many of
these systems geographically means that the actual retirement
of the replaced systems will not come until we have covered the
full geography of the Air Force.
But we are modernizing with the ERPs, and then we are also
looking carefully at our legacy systems, the ones that can be
remediated. Not all of them can. So, for those, we will be
reliant on the ERPs.
But, in certain cases, relatively cost-effective
investments in existing legacy systems will get us the trail
that we need to have clean financial input to the underlying
accounting system. So we are focused on that very closely, and
we are watching those interdependencies.
One final point, which is that in the medium--in the early
stages of the Air Force audit readiness effort, we perhaps bit
off more than we could chew with some of those systems
modernizations. Our ECSS effort, you know, was originally
planned to replace I believe 240 IT systems. That was probably
too much scope. And over the more than 5-year history of that
program it has now been tailored and moved into smaller
increments and releases of capability. Because trying to
replace 240 systems at once strained the planning and execution
capability of an institution of our size.
Mr. Conaway. Thank you.
Rob, 5 minutes.
Mr. Andrews. Thank you, Mr. Chairman.
Secretary Matiella, I understand in December of this
calendar year the Army is going to match GFEBS against the
GAO's sort of audit manual to see how it stacks up. Do you have
any early indication as to how GFEBS is going to stack up?
Secretary Matiella. I believe that we are going to be very
successful. We have been working very hard to make sure that
GFEBS is meeting the criteria that is required, that it has all
the general ledger accounts that it requires. So I believe that
at this point that GFEBS is going to be successful in being
able to meet the IG's [Inspector General] and all the other
regulation requirements.
Mr. Andrews. What is the Plan B? Because it seems that so
much of the Army's efforts for the audit compliance depends on
GFEBS really working the way you want it to. Is there some sort
of fire drill ready if there are deficiencies found in December
of this year?
Secretary Matiella. We are just--it is resourced. We have
got the resources there to fix what is broken. And so at this
point, you know, we plan on fully deploying GFEBS by July of
next year. We have got a lot of major commands that are fully
on GFEBS at this point. So we are sticking to Plan A. And, at
this point, what we see is GFEBS is working. There are no data
integrity problems. We do have to, you know, maybe slice and
dice the data within GFEBS into different accounts, but we
believe it is going to work. So we are very hopeful of that.
Mr. Andrews. With the chairman's permission, I think we
would like--the panel would probably like to have a report
after your December review, a letter or some kind of written
report to let us know how you are doing, because I think that
is a very pivotal midpoint.
[The information referred to can be found in the Appendix
on page 61.]
Secretary Matiella. More than happy.
Mr. Andrews. Thank you.
Secretary Commons, I love your story about the person who
wrote in and thought he was underpaid. Usually, they write to
me. I am glad it was you instead.
How long did it take you--when you asked that question, how
long did it take you to get the answer?
Secretary Commons. Actually, not very long. Within a day or
two. Our systems--our accounting systems for many years have
been at the transaction level detail. So we are able to go in
and look at data. Our issue is pulling that data out for the
auditors. But we have been at the transaction detail level for
many years.
Mr. Andrews. That is good.
I want to ask you a more subjective question based upon
your professional judgment. How would you place the probability
the Navy will get to that 2017 deadline? How probable is it?
Secretary Commons. I am very optimistic. Our deadline that
we have set for ourselves is fiscal year 2013. So I believe we
will have ample time to make whatever corrections we need to
make to meet the 2017 deadline. We are pushing very hard. We
are not slipping our deadline. We are trying to stick to it and
forcing the issues to make sure that we meet the 2017 deadline.
Mr. Andrews. I appreciate that.
And, Dr. Morin, you have spoken with great detail about the
systems modernization challenges that the Air Force has to get
to where we need to go. Are there any others in addition to
systems modernization that you think are potential roadblocks
to getting to the deadline?
Secretary Morin. There is absolutely a range of other
challenges. We have--it is people, it is processes, and it is
systems. And they have got to work in concert.
What we have found as we have rolled out DEAMS at Scott Air
Force Base is, you know, in many cases doing financial
management business in an auditable solid system is harder work
than doing it in a legacy system. You know, you can't just
enter seven 9s in a field and have the system pass the funding
document through. So we have had to do a lot of additional
training, a lot of hand holding as we get our workforce up on
this system. And there is education required as to the
strategic importance of this.
Mr. Andrews. How are you handling the employee education to
get your employees up to speed on what they have to do?
Secretary Morin. We have a very deliberate and careful
change management process that starts months and months in
advance of turning the system on.
Mr. Andrews. Who does the educating? Is it a vendor? Is it
in house? How do you do that?
Secretary Morin. It is a mixed force. We have a functional
management office that is made up of seasoned financial
managers that provides the detailed subject matter expertise. A
lot of the--a lot of the training is done by contract support.
But it is--it depends on exactly the level of training.
Mr. Andrews. Very quickly, Mr. Miller, I saw you had a
recommendation or a thought about the 45-day window at the end
of the fiscal year. Do you think there should be a longer
window for that compliance? If so, what should it be?
Mr. Miller. In the first-year audit, sir, that is very
difficult to make. After that, you are working towards that 45-
day window, and it is workable, and we have achieved it each of
the last 3 years.
Mr. Andrews. What do you think it should be in the first
year?
Mr. Miller. Sir, I think that first audit, it is going to
take 4 to 5 months in order to get the results from that first
audit.
Mr. Andrews. Some of us just hope that the Corps has some
money to be audited next year. A different problem. Thanks very
much.
Mr. Miller. Thank you, sir.
Mr. Conaway. Thanks, Rob.
Scott, 5 minutes.
Mr. Rigell. Good morning. Thank you, Mr. Chairman; and
thank you all for being here bright and early and all the
staff. We really appreciate that.
I am encouraged by what I am hearing. I think there is a
deep resolve to move this forward, and just as a fellow
American I thank you for that. We need to use our monies
wisely.
It seems like there was a common theme in your opening
remarks that incorporating an assessment of the senior
leadership, the executives, is starting to pay some benefit
there; and I can tell you from my private sector experience
that this is a good thing.
I have routinely sat down with general managers of
operating components and said, we are going to go through this
general ledger; and they say, well, I have never done that
before. And I say, well, this is how we run this business. And
I said, I am not trying to make an accountant out of you, but
you need to have a working knowledge of what you have been
entrusted with. And it has always been very helpful. So I
encourage you to pursue that.
Now, with that in mind, you always wonder, okay, well, how
are you establishing a benchline?
Let us say I am a hard-charging colonel in Afghanistan.
Come back, they reward me with a base. I am a 1-star now. I
walk on the base. I don't know what I have inherited with
respect to accounting. So how do you establish that baseline
and how do you judge his or her performance at the end of his
or her time?
And I just would direct that to the general--the panel
there, whoever would like to comment.
Secretary Commons. First, we are indeed working with our
flag and general officers as well. In fact, the Commandant of
the Marine Corps believes that this is so important he has
invited us to come and talk to his 3-star and above general
officers to explain to them exactly what is needed for
financial audit readiness.
Also, the Vice Chief of Naval Operations has offered the
same for his flag officers, that we come and talk to them about
the importance of audit readiness.
So we believe that we do have the support of the senior
leaders of the Department. We take advantage of every
opportunity to talk to senior leaders. I in fact went over and
talked to our senior executives within the Department of the
Navy, explained to them their role in this process. And, again,
we have visited or talked to every senior executive within the
Department of the Navy who influences the business processes to
tell them of their importance and the role that they play.
Because I think that is the key, that they understand the role
that they play in reaching financial audit readiness.
Mr. Rigell. A follow-up then might be if you could
provide--certainly me and maybe the panel here with copies of
that performance appraisal, not of course--not specific to a
person but just the generic one. I would like to see what we
are asking of our senior officers and how we are going about
that.
[The information referred to can be found in the Appendix
on page 61.]
And, also, I think you may want to consider, since you are
having real success in this area and it is helping, if we could
establish a culture even earlier on. If you have got your 3-
stars, that is great. But over time to develop that to where
we're instilling that is at junior and mid-level officers and
senior NCOs [non-commissioned officers] that this is just part
of your duty. We don't want to take the warrior out of you. We
don't want to do that. And I think we need to be careful about
how we approach these things. But certainly being accountable
for the assets entrusted to them is a good thing.
As we move along in this process--and wouldn't we all love
to fast-forward the tape to 2013 or 2017 and just see how we
all did--but there are measurable benchmarks along the way. I
trust those are clearly defined and we'll be informed along the
way.
And is there any third party--my final question, is there
any third party--Mr. Morin, I will direct this to you, sir. Is
there any third party that would come along and say, no, they
really are not meeting that and alarm bells would go off so we
could take action?
Secretary Morin. Third-party valuation is critical,
obviously, to any audit effort. We are relying on a series of
third-party validators. For example, for our appropriations
received assertion, we brought in an independent public
accounting firm to do an examination of that. And we have
received their unqualified opinion, and that is giving us
confidence that we fixed the issues there.
We also use the Inspector General. We use the DOD Inspector
General for a portion of our examinations, and we use the Air
Force audit agency as well. All of those bodies maintain a
sufficient level of independence.
But there is--we need to do a very good job of providing
those interim metrics, and we have plans with literally
thousands of line items of actions. Some of them----
Mr. Rigell. Thank you. My time has expired. I just want
to--out of respect for the chairman. Thank you, sir, very much.
Mr. Conaway. Thank you, Scott.
Mr. Courtney for 5 minutes.
Mr. Courtney. Thank you, Mr. Chairman.
Actually, I just have one quick question. Secretary
Commons, you mentioned in your testimony that, right now, the
Navy is going through an audit with the Inspector General. And
I am just--it is really--and I apologize for sort of talking
about--or spending time on an issue that most people probably
know standing on their head. But I mean is that an audit that
is just random or is that a regular audit or is that something
that you guys just sort of suddenly get a letter in the mail,
like the IRS [Internal Revenue Service]?
Secretary Commons. No, this is actually an examination to
prove out that we say that we are ready for audit of
completeness and existence of our high-value military
equipment. The DOD IG is actually coming behind and verifying
that the statement that I made is true, that we are ready
there. So they are auditing that. They are going out. They are
looking to see that the ships that are on our inventory are
actually there and recorded.
Mr. Courtney. And how long a process is that?
Secretary Commons. We believe that this should take only a
couple of months to complete this audit, but I don't control
the IG timeframe. I just respond to them.
Mr. Courtney. So if this effort to hit the 2017 target with
the new systems is successful, I mean, will that moot this sort
of Inspector General process? Or will it just make it easier to
comply with?
Secretary Commons. What we are actually trying to do is to
get the auditor's lens on our processes as quickly as possible
to confirm that the actions that we are taking, have taken are,
in fact, successful. That gives us confidence to move to the
next area that we need to work on. And so it is merely an
examination to prove out the fact that, yes, your processes are
good there, you are fully auditable in that area. When we have
completed this entire process and will be ready for audit of
the full statement, there will just be one audit.
Mr. Courtney. Thank you. I yield back, Mr. Chairman.
Mr. Conaway. Thanks, Mr. Courtney.
Mr. Palazzo for 5 minutes.
Mr. Palazzo. Thank you, Mr. Chairman; and I would like to
thank the witnesses for being here today to continue this
extremely important conversation.
In the essence of time--and I know my colleagues to the
right of me have some questions and there will probably be some
closing remarks, so I will try to keep this brief.
This is for everybody. Do you believe--I mean, there are
certain lessons learned as we go through this process. It is a
huge attempt to prepare the Services to become audit ready. And
we have had to look at ERP and updating our legacy systems to
more modern technology and, quite honestly, that--as a CPA
[Certified Public Accountant] and a former business owner, I am
still with the same tax preparation software and will probably
be until they discontinue it just because I fear that change
and that deliberative change management and, you know, we
finally got the system tweaked, even though it is not the best.
Anyway, I am digressing. So I didn't want to do that.
Do you see that these lessons learned--CPAs have a habit of
doing that. Do you see that these lessons learned are
applicable to all of the Services or do you think each Service
is so unique and so separate that we have to give--and I know
there is probably a certain amount of individual attention. But
do you think these lessons learned that, say, the Corps of
Engineers will be applicable to the Army, the Navy, Marine
Corps, and Air Force? So if you would just----
Secretary Matiella. I would like to answer that.
I believe that lessons learned are applicable across. I
went through an audit with the Forest Service. We got our first
clean opinion while I was CFO there. Those lessons learned are
things we are struggling here. It is about change management.
It is about training. It is about having the right systems. It
is about knowing how to be auditable, how to communicate with
the auditors.
Internal controls are important. So there is a lot of
lessons learned, and Wes here will also talk about that. But
this is why we are looking at the folks that are under
auditability. But you can go into not only inside of DOD,
outside of DOD and have the same lessons learned. Very
applicable.
Mr. Palazzo. And also are you all communicating between the
Services the lessons learned and the best practices?
Mr. Miller. Sir, I go on the road quite a bit and talk
about the lessons learned from our audit. I say there are four
things that were critical for us and that we learned.
First of all, there needs to be a CFO culture that you have
there. You have to have competent people, one. But you also
have to have individuals that expect to be checked. Individuals
will do best what they know is going to be checked. So bringing
in an external auditor in is very helpful as far as the audit
program.
The second point as far as having that financial management
system that provides the detail in the transactional fidelity
that you need to have there.
The third item is the command support. The command has to
be behind you 100 percent. It is just not the resource
management community that enforces the audit, but it has to be
the command. They have to buy into standards and enforcing
those standards when they need be.
And then the final element, as far as when we conduct the
audit, is that it is work conducting that audit. You have to be
there with the auditors, hand in hand, understanding their
particular position, getting them to understand your position
and why your processes are the way that they are.
And I think those are applicable to all Services, sir.
Mr. Palazzo. Anybody else?
Secretary Morin. Congressmen, if I could, I think it is
fair to say that DOD as a whole and each of the Services have
closely looked at the success of the Army Corps of Engineers
and we have used that to structure a lot of our governance
process. So each of the Services has a cross-functional team
chaired by the CFO that is responsible for bringing together
that command support and that set of knowledge across the
functions of a headquarters and an operation. So we have really
looked aggressively at that.
The Marine Corps audit, obviously still a work in progress
but an important piece of progress, our staffs and we
individually have had a number of interactions at a detailed
level going through the recommendations that came out of that.
In particular these are important for me at the Air Force
because of our tight timeline. We can't afford to learn lessons
by making mistakes ourselves. We have to learn lessons by
viewing others' successes and failures.
Mr. Palazzo. Well, that is admirable. I appreciate the fact
that you all are sharing lessons learned, best practices, and
everything else. And it is also admirable that you all are
taking on such a monumental task. Just a small CPA firm and the
fear of new technology and changing--so it is just wonderful to
see that you all are doing this and, at the end, we are going
to be able to achieve audit readiness. I think that is
wonderful. Thank you.
Mr. Conaway. The gentleman yields back.
Our rules are a little ill-defined. I will go to Mr.
Griffin first since he was here on time. Five minutes.
Mr. Griffin. Thank you, Mr. Chairman. I appreciate you
holding this hearing. And thank you all for coming early. I
really appreciate it.
I just did a whole lot of town halls over the break and/or
the vacation, as it was called. I didn't get the memo on that
one. But I talk about the fact that DOD has had this problem
with being audit ready; and when I am discussing it, folks
understand that. But they always want to know what are the
consequences of that.
And we have heard a lot of talk here about the systems. I
know that is what you all are focused on. But could you--could
you talk a little bit in layman's terms what the negative
consequences has been with DOD not being audit ready?
I know that the general narrative of some of the discussion
this morning has been that we are not technically audit ready
but we have the data somewhere. And that is often the case. But
there are real-life, negative, wasteful consequences to not
being audit ready, DOD not being audit ready. Can you all--can
you all give some examples that I could use back home to
explain why this is a problem for DOD? And it is not just a
function of technical compliance, that there really is an
impact in terms of taxpayers' dollars. Does anybody have
anything to share on that?
Secretary Commons. I will take a stab at that.
First of all, our systems were never designed to do
proprietary accounting the way that we are being asked to do it
today. They were designed for budgetary accounting; and, quite
frankly, we believe we do that very well. We do not have Anti
Deficiency Act violations as--we have some but not as many as
you find in some of the other agencies.
Our processes--our business processes were not designed
from end to end. In other words, if you were in the civilian
personnel business, your system was designed to support hiring,
getting people on board, and making sure that they were in the
system. It was not necessarily coordinated with the financial
system. So what we need to do is to look at our end-to-end
processes.
What the auditors do when they come in to look at our
books, they will say, I see from your financial records that
you are paying an employee. What I would now like to look at is
the supporting data supporting that entry in the accounting
system.
The supporting data is in fact a personnel action, be it
from an SF-52 or a 50. So when you go back you are going to the
personnel people to say give me that supporting documentation.
Our processes have not been optimized in that way. But that
is where we are going, to optimize those processes, make sure
that the linkages between the various business owners is there.
So that when the auditors come I can show them from end to end
this is the transaction in the accounting system, this is the
supporting documentation for that transaction, and they can
look at our entire process. That is what we have not yet done
and what we are working toward.
Mr. Griffin. So you would say to my constituents that, in
many cases, this is--this is more of a technical problem and is
not--does not reflect on a situation where you are unable to
track money. This has more to do with being able to know the
ins and outs of the money being spent, money coming in, and
being able to manage it better in the future. It does not
reflect a situation where you just don't know where the money
is; is that correct?
Secretary Commons. That is correct. Absolutely. I believe
we know where the money is. I think what this does for us by
going down to the transaction level of detail, it reinforces
the fact that the summary level data that we have can be relied
upon by our decisionmakers.
Mr. Griffin. Got you. Thank you.
Thank you, Mr. Chair.
Mr. Conaway. Mr. Young for 5 minutes.
Mr. Young. Thank you, Mr. Chair.
I want to thank our Assistant Secretaries, our Assistant
Deputy Commandant very much for being here this morning.
I was struck by a couple of different trends that I have
picked up, not just here today but in some of the previous
hearings we have had. First is the collaborative cross-
departmental effort to become audit ready, to achieve those
clean audit opinions; and then, second, is the very different
audit readiness goals that we find across departments. So I
would like to briefly dig into each of those.
First, I was encouraged by the Corps of Engineers' efforts
to educate everyone on what they regard as lessons learned,
best practices and I wanted to see if there are any specific
examples of changes that your departments have made, you know,
following some of those different consultations. Specifically,
if you can speak to--if anyone can speak to this integrated
financial management system, is that something that can be
overlaid into another department very easily? I mean, that
seems like it requires quite an investment of both time and
money to improve that. We have heard some talk about systems
and I am sort of getting my sea legs, as we say in the Navy,
with some of this material, but if you could speak to those
lessons learned and changes made right now, I would appreciate
that. Anyone.
Mr. Miller. Sir, concerning the use of CEFMS as far as in
other areas, that has in fact been tried. And it is a very
specific system that is designed in order to do project-based
accounting, so it is very good as far as for construction. But
it isn't for general fund type of accounting that the other
Services would need.
Secretary Matiella. One of the huge lessons learned that we
got from the Army Corps of Engineers is how to manage an audit.
An audit itself is a lot of work. For example, I like to
estimate how many samples we would get to have the support in
an audit, and I am thinking it is about 150,000 samples, just a
huge amount of work. So how do you manage that work so that you
can come up with an opinion in that 45-day window? Of course,
you start the audit way, way before the end of the fiscal year.
So there is a lot of lessons on audit governance and how
you communicate with the field and how you keep track of
deliverables and how you keep folks accountable for
deliverables, timeframes that are involved, and also developing
business rules on what is good supporting documentation. That
is a huge one that you can establish with the auditors way
ahead of time, is what is it they expect and what is an
appropriate level of work effort and support for a sample.
So in terms of how to negotiate an audit and do it well and
efficiently and on time and on cost is a huge lesson that we
have learned from the Corps of Engineers.
Mr. Young. Thank you.
Secretary Commons. I would say that certainly we learned
from the Corps of Engineers that we needed an efficient process
to retrieve and provide to the auditors a large balance of
source documentation. When the Marine Corps went to audit they
took that lesson learned to heart and they actually developed
an automated process using SharePoint server technology. So we
are in fact learning from each other as we go through the audit
process, and we are putting those lessons to use.
Mr. Young. I have got about 1 minute 20 left, so I am going
to allow one person to take a stab at this one. I am struck,
though, by the fact, as I said earlier, that we have got
different departments here learning from the lessons of the
Corps and from others, but we have very divergent, very
different audit readiness goals. To what do you attribute that?
Secretary Commons. Quite frankly, we are at different
stages of audit readiness. As we noted, the Marine Corps is
already under audit. We have done things in the Navy that we
may be a little farther ahead of the other departments, so it
is a matter of what stage you are in the audit readiness that
really sort of dictates the plan for us.
Secretary Morin. And, sir, if I may add, I think another
key piece is that the Services and the defense agencies are in
different places with regard to their IT support, so that the
Navy is starting from what is fundamentally a sound accounting
system that they fielded a decade or so ago. The Air Force is
starting from a bookkeeping system that was fielded in the
early '70s. So different prerequisites have to be worked with.
Mr. Conaway. Well, Rob, anything else?
Mr. Andrews. Yes, Mr. Chairman, just briefly.
I think it was Mr. Miller who used the phrase ``CFO
culture.'' Was that your phrase? I liked that one, and I think
it is a good summary of what we are trying to accomplish here
on the panel and what you ladies and gentleman are
accomplishing out in your work, which we appreciate. You said
that if you expect to be audited, you begin to change your
behavior. Members of Congress would be wise to maybe keep that
in mind, too.
Our objective on this panel is to, in effect, audit the
auditors. We want to keep in touch with you, we want to hear
about your progress, and as that culture filters down through
the agencies I think we will find ourselves in a much better
position to understand what we are doing and make informed
judgments.
Mr. Chairman, I give you credit that your single-minded
devotion to making this happen is the reason we are hearing
about this progress today, and you have my commitment that we
will continue to work with you and with the ladies and
gentlemen we have heard from today to move even further down
the road so we achieve that day when each of these entities has
an auditable financial statement, achieves that unqualified
opinion, and I think we will accomplish something of real
value. Thank you.
Mr. Conaway. Thanks, Rob.
I also was encouraged by Jamie's comments that you don't
necessarily have to make all the mistakes yourself, that you
can learn from each other. Each of these audit processes will
come with a report by the auditor at the end of the deal as to
where you need to improve, a formal system for sharing those at
some proper level with your team so that you don't in fact have
to reinvent the wheel each time that something is disclosed,
that you can learn from those issues.
This team on our side of the panel will be better informed
this time next year. We will have a lot better sense, since we
are putting this work together now, as to how much progress is
being made.
Mr. Miller, you mentioned that you do what gets checked.
Having performance evaluation metrics in each of the senior
executive's performance plan for next year, somebody, Rob and I
or somebody, is going to be interested in looking at how that
worked, are there in fact consequences to doing the job that
you were asked to do and charged with doing, and are there
consequences for where that did not get done and a variety of
reasons.
So we will be checking those kinds of things, and our side
will have a better foundation of being able to evaluate how
this progress is going. This is not us against you, obviously.
That is not intended in any way to be there. But we have a
role, and you have one as well.
This has been one of our more productive hours spent
together, and I appreciate each of you coming in and reaching
out to us ahead of time as well, either in August or this past
week or so. So thank you for that.
If there are things that we can do to address things that
are standing in your way, legal issues, other things that are
there, we have an open door as to how we get that addressed.
One of the things that Rob and I will be watching is how
the various agencies are resourced in your efforts. Each of you
have said at this stage you believe you are properly resourced
to get the job done. In this era of cutting spending, sometimes
that can impact this. So we will be watching to make sure that
these efforts are resourced so that we do in fact get to a
point that--and we talk about the audit, but the real issue is,
day in and day out, data generation systems, management
information systems, internal control systems that generate all
of this and allow a once-a-year quick Good Housekeeping--I say
``quick''--Good Housekeeping Seal of Approval to be laid on
this deal. But it is really about the sustained information
systems and flow of information that decisionmakers will need
on both sides of our respective responsibilities that are
there.
So, ladies and gentlemen, thank you very much for coming
this morning. If there is nothing else, we will stand
adjourned. Thank you.
[Whereupon, at 9:05 a.m., the panel was adjourned.]
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
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WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
September 8, 2011
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RESPONSE TO QUESTION SUBMITTED BY MR. RIGELL
Secretary Commons. Listed below are generic performance standards
developed for use by Department of the Navy senior executives.
General Department of the Navy Guidance. If the Senior Executive
Service (SES) member's performance has a direct influence on the
accomplishment of Department of the Navy Financial Improvement and
Readiness/Financial Improvement Plan (FIAR/FIP) objectives, the
performance objective should be reflected in the ``Contribution to
Mission Accomplishment'' mandatory critical element. If the SES
member's performance has an indirect influence on the accomplishment of
DON FIAR/FIP objectives, the performance objective should be reflected
in the ``Leadership/Supervision'' mandatory critical element.
Generic Leadership/Supervision Mandatory Critical Element.
Achieves results pertaining to the Department of the Navy's Financial
Improvement and Financial Readiness/Financial Improvement Plan goals
and objectives intended to improve access to timely, relevant, and
reliable financial and cost information to make informed decisions and
ensure resources are optimally aligned to priority tasks focused on
meeting the National Defense Authorization Act requirement to have
auditable financial statements by 2017. Establishes
appropriate strategic plans, including goals and implementation
activities necessary to effect business process changes targeted at
achieving desired results. Ensures goals and activities are reflected
in performance plans of subordinate managers and are cascaded
throughout the organization. Submits quality progress reports and work
products to superiors, including Departmental officials as required.
Effectively manages agency resources toward the attainment of the
Department of the Navy Financial Improvement and Readiness/Financial
Improvement Plan goals and objectives.
Tailored Contribution to Mission Accomplishment Critical Element.
Personnel and Payroll Business Process Objective. Ensure the
accuracy of DON master employee records through the processing and
retention of documentation that support human resource data in the
Defense Civilian Personnel Data System.
Acquisition Business Process Objective. Validate audit readiness of
financial reporting processes associated with acquisition, including
proper financial accounting treatment for assets, standard procurement
systems and data elements, unique identification of assets, etc.
Existence and Completeness of Property Business Process Objective
Ensure controls are in place to document receipt of physical
assets Implement business transformation plans to enable audit
readiness of real property acquire-to-retire business process,
including conducting asset inventories and establishing a valuation
process (i.e. DD1354) [See page 14.]
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RESPONSE TO QUESTION SUBMITTED BY MR. ANDREWS
Secretary Matiella. The Army expects to finish the internal review
of GFEBS against the GAO Financial Information Systems Control Audit
Manual (FISCAM) in late December 2011 and will plan to provide this
panel with a summary of our results not later than January 31, 2012.
[See page 12.]
?
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
September 8, 2011
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QUESTIONS SUBMITTED BY MR. CONAWAY
Mr. Conaway. Although the Air Force, Army, and Navy are not as far
along as the USMC in achieving full financial auditability, all three
Services are making progress. As a result, the Air Force, Army, and
Navy should be already seeing benefits from implementing the Financial
Improvement and Readiness plan. Please describe, in detail, what
tangible benefits your Service has already experienced.
Secretary Matiella. Army has accrued several tangible benefits as a
result of implementing audit readiness efforts. These efforts, along
with the implementation of the General Fund Enterprise Resource System
(GFEBS), have standardized business processes, improved both automated
and manual internal controls and provided the framework for successful
audits. For example, the US Army Corps of Engineers has a three year
record of achieving an unqualified audit opinion on its financial
statements. The lessons learned from the Corps of Engineers, along with
Army audit readiness efforts, led to an unqualified audit opinion on
the Army's appropriations received, a positive first step toward
achieving an overall financial statement opinion.
Another benefit we have experienced to date is the increased
ownership in audit readiness from the Army's leaders and Command and
Installation staff, specifically from outside the financial management
community. Non-financial personnel have begun to understand and
appreciate the role they play in supporting audit readiness on a daily
basis, rather than requiring the financial community to shoulder the
entire burden. This is a critical benefit to improving our business
environment and enabling the Army to attain and sustain audit
readiness.
The Army has provided resources to meet all fiscal year
requirements, from FY 11 through FY 16, for audit readiness. For
example, the fiscal year 2012 requirement of $44 million has been
funded. With these resources and a sound financial improvement plan,
Army will build on its initial successes and achieve auditable
financial statements by September 30, 2017 as required under the
National Defense Authorization Act of 2010.
Mr. Conaway. Although the Air Force, Army, and Navy are not as far
along as the USMC in achieving full financial auditability, all three
Services are making progress. As a result, the Air Force, Army, and
Navy should be already seeing benefits from implementing the Financial
Improvement and Readiness plan. Please describe, in detail, what
tangible benefits your Service has already experienced.
Secretary Commons. One outcome of progress in advancing the
Department of the Navy's financial improvement and audit readiness
initiative includes the recent receipt of an unqualified audit opinion
on our funds receipt and distribution process (referred to as
appropriations received process) from an independent public accounting
firm this past August 2011. The tangible benefit of this unqualified
opinion is independent evidence that Congress and the taxpayer can be
assured that the amounts appropriated by the Congress are well
controlled, accurately reported, and that we meet the intent of the
Congress in allocating those resources. Sustainment of this process
enables improved standardization of our business practices, enhanced
transparency of our underlying management information, and better
utilization of warfighter resources.
The tangible benefit of the current DoD Inspector General
examination of our selected military equipment existence and
completeness effort is the assurance that the warfighter knows the
assets available and where they are located to accomplish the mission.
Finally, the tangible benefit from the USMC audit engagement is it
provided critical insight into the DoD-wide collaboration and
infrastructure required to efficiently provide the auditors extremely
large amounts of transactional data and supporting documentation
necessary to be successful in an audit engagement.
Mr. Conaway. The United States Marine Corps (USMC) is the furthest
along out of the Services in achieving an unqualified opinion on a
financial audit. Please describe, in detail, the tangible benefits USMC
has seen as a result of the statement of budgetary resources audit.
Secretary Commons. The most significant tangible benefit the USMC
has realized as a result of the ongoing audit of the Statement of
Budgetary Resources (SBR) is the increasing assurance that Marine Corps
financial data is accurate and can be relied upon to inform decision
making. The USMC and the Department of the Navy (DON) leadership are
cautiously optimistic the FY2011 SBR audit engagement will yield a
positive outcome.
A second sizeable and tangible benefit has been the key lessons
learned from the USMC SBR audit which have been leveraged and shared
within DON and across the Department of Defense. These include: USMC's
recently-developed capability to fully reconcile and trace detailed
transactions to the reported balances on the SBR; their repeatable
capability to reconcile USMC cash balances with Treasury; strengthened
controls over accruals and estimated obligations; greater rigor in
validating obligations during tri-annual reviews; and increased
controls over recording of appropriations shared with the Navy.
Finally, another tangible benefit is the ongoing cultural change
within the USMC. The same rigor and discipline which has long been a
defining characteristic of USMC operations and doctrine are evolving as
standards in USMC financial management. The value of improved,
auditable financial practices and greater accountability for business
and financial operations is now recognized by USMC leadership and
throughout the organization.
Mr. Conaway. The United States Marine Corps (USMC) is the furthest
along out of the Services in achieving an unqualified opinion on a
financial audit. Please describe, in detail, the tangible benefits USMC
has seen as a result of the statement of budgetary resources audit.
Ms. Spangler. The lessons learned from both the Fiscal Year (FY)
2010 and 2011 Statement of Budgetary Resources (SBR) audits have
generated many improvements and benefits for the Marine Corps as well
as other Services and agencies within the Department of Defense (DoD).
The foundation of the audit is to support the balances represented
on the financial statement by performing examinations that tie the
accounting transaction to its corresponding documentation. While
initially very challenging, the Marine Corps was able to fully
reconcile detailed transactions to the reported balances on the SBR,
and the auditors were able to test samples from a listing of
transactions. To date, the Marine Corps is the only Service with this
validated capability.
The Marine Corps has seen internal benefits from pursuing the audit
such as improved models and controls for estimated obligations; a
strengthened process to accomplish DoD mandated Tri-Annual Reviews; and
general ledger corrections to support the appropriate recording and
reporting of appropriations shared with the Navy. These have improved
the clarity of our information and allowed leadership to base decisions
with increased agility. Furthermore, we have made great strides with
automation and reconciliation tools. However, the Marine Corps is
acutely aware that investments will still be required to improve
controls or systems to bring them in line with Generally Accepted
Accounting Principles (GAAP) and audit standards.
The larger DoD community has also benefited from Marine Corps audit
efforts. DoD-wide processes are being analyzed for compliance with GAAP
given auditor identified concerns with advances (pre-payments) and
contract financing payments. While the Marine Corps' processing of
these payments was in compliance with DoD Financial Management
Regulation (FMR) guidelines, efforts are underway within the Office of
the Under Secretary of Defense (Comptroller) to update and/or clarify
the DoD FMR so that future audits will not generate similar GAAP
concerns. The issues, findings, and lessons learned, if appropriately
implemented throughout the Department, will exponentially speed-up the
audit posture of the DoD. The end-state will be improved recognition
and transparency on how, what and when we spend and in a manner that is
accurate and auditable.
The auditors tested several key information systems that are
leveraged heavily across DoD. Defense Cash Accountability System (DCAS)
and the Defense Departmental Reporting System (DDRS) were evaluated for
internal control accuracy and the auditors' findings have generated
improvements in system access policies, programming practices, and
system-to-system communications. Our systems environment is being
strengthened through improved monitoring of user roles and system
policies, allowing for increased confidence in system reliability and
data outputs. The audit has uncovered gaps in roles and
responsibilities for systems that play a significant part in our
financial management processes but whose ownership and control is
outside of our functional purview. These DoD-wide systems are also
undergoing improvements that will demonstrate sustainable Federal
Financial Management Improvement Act (FFMIA) compliance as we fortify
of our business enterprise to streamline operations and identify
efficiencies that maximize the utilization of every dollar. From
improved procedures that test and track system updates to better
monitoring of system errors, the audit is generating visibility and
accountability across key facets of our system enterprise. Working
closely with the Defense Finance and Accounting Service (DFAS) and the
former Business Transformation Agency (BTA), the Marine Corps performed
a general ledger reconciliation of the unadjusted trial balance to the
adjusted trial balance. This was an achievement never accomplished
prior to the audit, and spurred improved financial reporting and
reconciliation support that will yield benefits for all financial
statement reporting entities within the DoD. In this regard, the
automated DDRS Information Center (ICe) tool is being developed to
assist in producing quick, accurate and reconcilable trial balances for
all DoD components. The previous process for reconciling detailed
transactions to the financial statement involved four separate
departments, a myriad of system interface reconciliations, and the
direct involvement of over 50 people. As a result of the audit, this
new automation will represent a workforce savings, as these needed
records will be generated swiftly and without significant manual
intervention.
The Marine Corps is the first Service to undertake an audit of a
major financial statement, the General Fund SBR. We volunteered for
this mission because we recognized that a successful audit is critical
to effectively managing the resources provided by the Congress, and
would further demonstrate our faithful stewardship of the Nation's
resources. Based on the findings to date we are confident that
auditability will enhance our readiness posture by enabling better
utilization of the funding provided by Congress, and will provide us
better data upon which to base future budget development in this period
of declining resources. While the audit is not yet complete, the
progress we have made has made us confident that our ongoing efforts
will ultimately be validated by an audit opinion and continued
auditability.
Mr. Conaway. Although the Air Force, Army, and Navy are not as far
along as the USMC in achieving full financial auditability, all three
Services are making progress. As a result, the Air Force, Army, and
Navy should be already seeing benefits from implementing the Financial
Improvement and Readiness plan. Please describe, in detail, what
tangible benefits your Service has already experienced.
Secretary Morin. The Air Force has completed several assertions.
They include: Funds Receipt; Existence and Completeness of Military
Equipment, Cruise Missiles, and Aerial Targets; and Fund Balance with
Treasury Reconciliation. In order to make these assertions, we have
implemented multiple corrective actions which will benefit the Air
Force. These actions include:
Implementing an automated cash reconciliation tool
allowing the AF to balance its checkbook and reduce unmatched
disbursements from approximately $1.3 Billion to $800 thousand.
This reduces the time required to research and resolve our
unmatched disbursements; however, because numerous audit
readiness tasks remain to be completed, we have not reduced
manning based on these time savings.
As part of our Funds Distribution assertion, AF
developed a four system cross reconciliation providing greater
transparency into our processes and ensuring the timely
resolution of any discrepancies identified. We also implemented
a standard document numbering process to facilitate the
reconciliation process. While the savings cannot be precisely
measured, the increased reliability in our data allows us to
execute funds with greater confidence.
We will continue to implement appropriate controls to support audit
readiness and enhance efficiency.
Mr. Conaway. The U.S. Army Corps of Engineers has achieved an
unqualified opinion on their financial audits for the past three years.
In the testimony received on September 8, 2011, Mr. Miller indicated he
cannot quantify the dollar savings in doing the audits; however, there
are other benefits to doing audits, such as being able to identify
spare equipment and parts on hand thus reducing superfluous reordering.
Please describe, in detail, the tangible benefits the U.S. Army Corps
of Engineers has experienced as a result of completing their audits.
Mr. Miller. The greatest benefit related to performing financial
statement audits in the Federal government, more specifically in the
U.S. Army Corps of Engineers (USACE), is a continuous emphasis on
standardizing business processes that contain strong internal controls.
USACE can show tangible benefits such as low Prompt Payment Act
interest penalties, fewer improper contractual payments, no unmatched
disbursements, and shorter processing time for travel payments. These
accomplishments may not have been a direct result of the audit but
rather the annual Chief Financial Auditor (CFO) audit has been a main
driver in creating what I refer to as a ``CFO Culture.''
This ``CFO Culture'' is primarily built upon three main components:
(1) the Corps of Engineers Financial Management System (CEFMS) and the
internal controls programmed into that system, which forces strong
internal controls into our business processes; (2) USACE Commanders
understanding the importance of strong internal controls and being held
accountable at all levels; and (3) an environment of accountability and
stewardship over the resources entrusted to us by Congress and our many
customers and stakeholders.
The pillar of the USACE ``CFO Culture'' is CEFMS--an enterprise
financial management system that USACE built internally and deployed
fully in fiscal year (FY) 1998. CEFMS is frequently referred to as a
comprehensive ``self contained'' system. This means from the point the
funds are loaded into CEFMS to the point they are disbursed, the
detailed subsidiary and general ledger transactions are linked and are
inclusive in one system. Transactions that result in payment,
regardless of functional source, must originate and disburse within
CEFMS. The enterprise approach prevents costly duplication and
expensive interfaces and improves auditability. Project Managers and
many of the other 33,000 USACE employees use CEFMS daily for functions
such as creating purchase requests/obligations, certifying contract
progress and payments, creating travel orders and vouchers, recording
the disposal of excess property, recording the receipt of goods,
recording time and attendance, and processing collections and
disbursements. CEFMS provides real-time funds control throughout the
entire budget life cycle (fund, commit, obligate, expense, disburse).
The system updates simultaneously the detailed subsidiary records and
United States Standard General Ledgers (USSGLs) for both proprietary
and budgetary accounts with automated reconciliations between the
subsidiary data and the general ledgers. These features provide a
complete audit trail, at detailed subsidiary level, to facilitate the
accelerated reporting requirements associated with financial statement
audits. A fully integrated financial system allows our travelers almost
instant reimbursement of travel costs, with turnaround times of one day
for temporary duty travel and two days for permanent change of station
travel. Many of the USACE internal controls and data edits are ``hard
coded'' into CEFMS, forcing user compliance and providing data
validation. These internal controls cover data entry, transaction
processing and reporting.
Business process improvement is another benefit of the financial
statement audit process. It is a critical focus embedded in the USACE
internal controls and internal audit functions as part of our risk
management initiatives. This provides a framework for not only
identifying risks, errors and potential instances of fraud, but for
addressing those risks. We can show tangible benefits such as the
$103,633 Civil Works Prompt Payment Act interest penalties in Fiscal
Year 2011 (through August 31, 2011) on disbursements of over $8.5
billion. The $103,633 in interest penalties is a reduction of 86% from
our FY 2007 figures (the year before we achieved an unqualified
opinion). Another tangible benefit is the $5.1million in improper
payments for FY 2011 of which almost 100% was recovered. Finally other
benefits are $0 in both Unmatched Disbursements and Negative
Unliquidated Obligations. USACE leadership has embraced CFO compliance.
In FY 2008, USACE established the Executive Senior Assessment Team
(ESAT). The ESAT mission is to provide leadership and direction over
financial audits and associated controls. The USACE Deputy Commander
chairs the ESAT, which is comprised of all the Headquarters Senior
Executive Service Directors. At the field level, CFO Act compliance and
strong internal controls have become a critical part of day-to-day
functions and are subject to continuous monitoring through a robust
internal testing program, which lowers the cost of an external audit.
The audit opinion and the associated scrutiny of our strong
internal controls demonstrate to our customers that USACE's financial
data and underlying business processes meet the highest standards of
generally accepted accounting practices. This type of assurance is
crucial to develop trust between USACE and its customers. The audit of
the USACE Civil Works Program has enhanced our ability to readily
supply detailed accurate financial data that provides transparency to
the American taxpayer. Our CFO culture has become engrained in every
USACE business process and that culture is our greatest benefit.
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